Item 1. Financial Statements
Item 1. Financial Statements (unaudited)
TTM TECHNOLOGIES, INC.
Consolidated Condensed Balance Sheets
As of September 28, 2020 and December 30, 2019
As of
September 28,
December 30,
2020
2019
(Unaudited)
(In thousands, except par value)
ASSETS
Current assets:
Cash and cash equivalents
$
413,310
$
379,818
Restricted cash
249,975
—
Accounts receivable, net
374,971
503,598
Contract assets
281,663
254,600
Inventories
127,588
113,753
Current assets held for sale
—
67,572
Prepaid expenses and other current assets
38,670
23,343
Total current assets
1,486,177
1,342,684
Property, plant and equipment, net
654,837
678,201
Operating lease right-of-use assets
22,993
22,173
Goodwill
637,324
706,524
Definite-lived intangibles, net
292,280
325,680
Non-current assets held for sale
—
425,597
Deposits and other non-current assets
54,803
60,074
Total assets
$
3,148,414
$
3,560,933
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Short-term debt, including current portion of long-term debt
$
249,975
$
249,975
Accounts payable
341,505
329,866
Contract liabilities
2,999
3,838
Accrued salaries, wages and benefits
77,525
85,114
Current liabilities held for sale
—
185,391
Other current liabilities
115,318
92,482
Total current liabilities
787,322
946,666
Long-term debt, net of discount and issuance costs
840,023
1,225,962
Operating lease liabilities
15,885
15,413
Non-current liabilities held for sale
—
1,530
Other long-term liabilities
105,881
92,325
Total long-term liabilities
961,789
1,335,230
Commitments and contingencies (Note 14)
Equity:
Common stock, $ 0.001 par value; 300,000 shares authorized, 106,742 and 105,510
shares issued and outstanding as of September 28, 2020 and December 30, 2019,
respectively
107
106
Additional paid-in capital
826,859
814,708
Retained earnings
612,884
474,309
Accumulated other comprehensive loss
( 40,547
)
( 10,086
)
Total stockholders’ equity
1,399,303
1,279,037
Total liabilities and stockholders' equity
$
3,148,414
$
3,560,933
See accompanying notes to consolidated condensed financial statements.
3
TTM TECHNOLOGIES, INC.
Consolidated Condensed Statements of Operations
For the Quarter and Three Quarters Ended September 28, 2020 and September 30, 2019
Quarter Ended
Three Quarters Ended
September 28,
September 30,
September 28,
September 30,
2020
2019
2020
2019
(Unaudited)
(In thousands, except per share data)
Net sales
$
513,576
$
534,173
$
1,581,520
$
1,597,495
Cost of goods sold
424,298
448,915
1,310,470
1,320,563
Gross profit
89,278
85,258
271,050
276,932
Operating expenses:
Selling and marketing
15,895
17,153
48,033
51,611
General and administrative
29,086
33,116
110,476
95,267
Research and development
5,223
4,358
15,166
13,570
Amortization of definite-lived intangibles
10,126
9,500
29,249
36,245
Impairment of goodwill
69,200
—
69,200
—
Total operating expenses
129,530
64,127
272,124
196,693
Operating (loss) income
( 40,252
)
21,131
( 1,074
)
80,239
Other (expense) income:
Interest expense
( 20,204
)
( 20,423
)
( 58,557
)
( 62,111
)
Other, net
( 2,316
)
5,875
641
8,525
Total other expense, net
( 22,520
)
( 14,548
)
( 57,916
)
( 53,586
)
(Loss) income from continuing operations before income taxes
( 62,772
)
6,583
( 58,990
)
26,653
Income tax benefit (provision)
1,300
( 4,190
)
3,644
( 5,529
)
Net (loss) income from continuing operations
( 61,472
)
2,393
( 55,346
)
21,124
Income (loss) from discontinued operations, net of income taxes
20,021
13,477
193,921
( 5,082
)
Net (loss) income
$
( 41,451
)
$
15,870
$
138,575
$
16,042
(Loss) earnings per share:
Basic (loss) earnings per share from continuing operations
$
( 0.58
)
$
0.02
$
( 0.52
)
$
0.20
Basic earnings (loss) per share from discontinued operations
0.19
0.13
1.83
( 0.05
)
Basic (loss) earnings per share
$
( 0.39
)
$
0.15
$
1.31
$
0.15
Diluted (loss) earnings per share from continuing operations
$
( 0.58
)
$
0.02
$
( 0.52
)
$
0.20
Diluted earnings (loss) per share from discontinued operations
0.19
0.13
1.83
( 0.05
)
Diluted (loss) earnings per share
$
( 0.39
)
$
0.15
$
1.31
$
0.15
See accompanying notes to consolidated condensed financial statements.
4
TTM TECHNOLOGIES, INC.
Consolidated Condensed Statements of Comprehensive (Loss) Income
For the Quarter and Three Quarters Ended September 28, 2020 and September 30, 2019
Quarter Ended
Three Quarters Ended
September 28,
September 30,
September 28,
September 30,
2020
2019
2020
2019
(Unaudited)
(In thousands)
Net (loss) income
$
( 41,451
)
$
15,870
$
138,575
$
16,042
Other comprehensive income (loss), net of tax:
Pension obligation adjustments, net
( 17
)
( 23
)
4
( 4
)
Reclassification adjustment for foreign currency translation
( 346
)
—
( 346
)
—
Derecognition of foreign currency translation adjustments
due to sale of Mobility business unit
—
—
( 27,341
)
—
Foreign currency translation adjustments, net
1,049
( 954
)
778
( 925
)
Derecognition of unrealized losses on cash flow hedge
due to sale of Mobility business unit
—
—
384
—
Net unrealized losses on cash flow hedges:
Unrealized loss on effective cash flow hedges during
the period, net
( 655
)
( 1,833
)
( 8,667
)
( 8,164
)
Loss realized in the statement of operations, net
2,098
554
4,727
1,128
Net
1,443
( 1,279
)
( 3,940
)
( 7,036
)
Other comprehensive income (loss), net of tax
2,129
( 2,256
)
( 30,461
)
( 7,965
)
Comprehensive (loss) income, net of tax
$
( 39,322
)
$
13,614
$
108,114
$
8,077
See accompanying notes to consolidated condensed financial statements.
5
TTM TECHNOLOGIES, INC.
Consolidated Condensed Statements of Stockholders’ Equity
For the Three Quarters Ended September 28, 2020
Common Stock
Additional
Paid-In
Retained
Accumulated
Other
Comprehensive
Total
Stockholders'
Shares
Amount
Capital
Earnings
Loss
Equity
(Unaudited)
(In thousands)
Balance, December 30, 2019
105,510
$
106
$
814,708
$
474,309
$
( 10,086
)
$
1,279,037
Net loss
—
—
—
( 1,174
)
—
( 1,174
)
Other comprehensive loss
—
—
—
—
( 5,498
)
( 5,498
)
Issuance of common stock for
performance-based
restricted stock units
187
—
—
—
—
—
Issuance of common stock for
restricted stock units
520
—
—
—
—
—
Stock-based compensation
—
—
4,835
—
—
4,835
Balance, March 30, 2020
106,217
$
106
$
819,543
$
473,135
$
( 15,584
)
$
1,277,200
Net income
—
—
—
181,200
—
181,200
Other comprehensive loss
—
—
—
—
( 27,092
)
( 27,092
)
Issuance of common stock for
restricted stock units
484
1
( 1
)
—
—
—
Stock-based compensation
—
—
2,647
—
—
2,647
Balance, June 29, 2020
106,701
$
107
$
822,189
$
654,335
$
( 42,676
)
$
1,433,955
Net loss
—
—
—
( 41,451
)
—
( 41,451
)
Other comprehensive income
—
—
—
—
2,129
2,129
Exercise of stock options
20
—
191
—
—
191
Issuance of common stock for
restricted stock units
21
—
—
—
—
—
Stock-based compensation
—
—
4,479
—
—
4,479
Balance, September 28, 2020
106,742
$
107
$
826,859
$
612,884
$
( 40,547
)
$
1,399,303
See accompanying notes to consolidated condensed financial statements.
6
TTM TECHNOLOGIES, INC.
Consolidated Condensed Statements of Stockholders’ Equity
For the Three Quarters Ended September 30, 2019
Common Stock
Additional
Paid-In
Retained
Accumulated
Other
Comprehensive
Total
Stockholders'
Shares
Amount
Capital
Earnings
Loss
Equity
(Unaudited)
(In thousands)
Balance, December 31, 2018
103,687
$
104
$
797,895
$
433,008
$
( 3,920
)
$
1,227,087
Net loss
—
—
—
( 3,252
)
—
( 3,252
)
Other comprehensive loss
—
—
—
—
( 901
)
( 901
)
Redemption of convertible
notes, net
—
—
( 1
)
—
—
( 1
)
Issuance of common stock for
performance-based
restricted stock units
694
—
—
—
—
—
Issuance of common stock for
restricted stock units
1,040
1
( 1
)
—
—
—
Stock-based compensation
—
—
3,926
—
—
3,926
Balance, April 1, 2019
105,421
$
105
$
801,819
$
429,756
$
( 4,821
)
$
1,226,859
Net income
—
—
—
3,424
—
3,424
Other comprehensive loss
—
—
—
—
( 4,808
)
( 4,808
)
Issuance of common stock for
restricted stock units
70
—
—
—
—
—
Stock-based compensation
—
—
3,602
—
—
3,602
Balance, July 1, 2019
105,491
$
105
$
805,421
$
433,180
$
( 9,629
)
$
1,229,077
Net income
—
—
—
15,870
—
15,870
Other comprehensive loss
—
—
—
—
( 2,256
)
( 2,256
)
Issuance of common stock for
restricted stock units
2
—
—
—
—
—
Stock-based compensation
—
—
4,662
—
—
4,662
Balance, September 30, 2019
105,493
$
105
$
810,083
$
449,050
$
( 11,885
)
$
1,247,353
See accompanying notes to consolidated condensed financial statements.
7
TTM TECHNOLOGIES, INC.
Consolidated Condensed Statements of Cash Flows
For the Three Quarters Ended September 28, 2020 and September 30, 2019
Three Quarters Ended
September 28, 2020
September 30, 2019
(Unaudited)
(In thousands)
Cash flows from operating activities:
Net income
$
138,575
$
16,042
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation of property, plant and equipment
97,172
124,556
Amortization of definite-lived intangible assets
34,209
41,807
Amortization of debt discount and issuance costs
14,488
10,764
Deferred income taxes
8,039
( 2,453
)
Stock-based compensation
11,961
12,190
Impairment of goodwill
69,200
—
Gain on sale of the Mobility business unit
( 237,253
)
—
Other
( 242
)
( 2,592
)
Changes in operating assets and liabilities:
Accounts receivable, net
128,681
( 6,777
)
Contract assets
( 33,500
)
19,199
Inventories
( 10,557
)
( 16,947
)
Prepaid expenses and other current assets
( 15,008
)
( 6,049
)
Accounts payable
15,902
21,435
Contract liabilities
( 839
)
( 473
)
Accrued salaries, wages and benefits
( 11,804
)
( 12,374
)
Other current liabilities
22,661
( 16,539
)
Net cash provided by operating activities
231,685
181,789
Cash flows from investing activities:
Proceeds from sale of the Mobility business unit, net of cash disposed
507,466
—
Purchase of property, plant and equipment and other assets
( 84,042
)
( 95,372
)
Proceeds from sale of property, plant and equipment and other assets
154
6,382
Other
( 623
)
—
Net cash provided by (used in) investing activities
422,955
( 88,990
)
Cash flows from financing activities:
Repayment of long-term debt borrowing
( 400,000
)
( 30,000
)
Proceeds from exercise of stock options
191
—
Payment of debt issuance costs
—
( 1,639
)
Redemption of convertible notes
—
( 10
)
Other
7,321
—
Net cash used in financing activities
( 392,488
)
( 31,649
)
Effect of foreign currency exchange rates on cash, cash equivalents, and restricted cash
979
( 921
)
Net increase in cash, cash equivalents, and restricted cash
263,131
60,229
Cash, cash equivalents, and restricted cash at beginning of period
400,154
256,360
Cash, cash equivalents, and restricted cash at end of period
663,285
316,589
Cash, cash equivalents, and restricted cash in assets held for sale
—
( 20,230
)
Cash, cash equivalents, and restricted cash as presented on the consolidated condensed balance sheet
$
663,285
$
296,359
Supplemental cash flow information:
Cash paid, net for interest
$
40,540
$
58,319
Cash paid, net for income taxes
15,856
12,367
Net cash provided by operating activities from discontinued operations
39,462
12,218
Net cash provided by (used in) investing activities from discontinued operations
497,916
( 20,356
)
Net cash used in financing activities from discontinued operations
—
—
Supplemental disclosure of noncash investing activities:
Property, plant and equipment recorded in accounts payable
$
26,914
$
66,681
Supplemental disclosure of noncash investing activities from discontinued operations:
Property, plant and equipment recorded in accounts payable
$
—
$
10,495
See accompanying notes to consolidated condensed financial statements.
8
TTM TECHNOLOGIES, INC.
Notes to Consolidated Condensed Financial Statements
(Unaudited)
(Dollars and shares in thousands, except per share data)
(1) Nature of Operations and Basis of Presentation
TTM Technologies, Inc. (the Company or TTM) is a leading global printed circuit board (PCB) manufacturer, focusing on quick-turn and volume production of technologically advanced PCBs and backplane assemblies as well as a global designer and manufacturer of high-frequency radio frequency (RF) and microwave components and assemblies. The Company provides time-to-market and volume production of advanced technology products and offers a one-stop design, engineering and manufacturing solution to customers. This one-stop design and manufacturing solution enables the Company to align technology developments with the diverse needs of the Company’s customers and to enable them to reduce the time required to develop new products and bring them to market.
The Company serves a diversified customer base in various markets throughout the world, including aerospace and defense, computing, automotive components, medical, industrial and instrumentation related products, as well as networking/communications infrastructure products. The Company’s customers include both original equipment manufacturers (OEMs) and electronic manufacturing services (EMS) providers.
The accompanying consolidated condensed financial statements have been prepared by the Company, without audit, pursuant to the rules and regulations of the Securities and Exchange Commission (SEC). Certain information and disclosures normally included in financial statements prepared in accordance with accounting principles generally accepted in the United States of America (U.S. GAAP) have been condensed or omitted pursuant to such rules and regulations. It is suggested that these consolidated condensed financial statements be read in conjunction with the consolidated financial statements and the notes thereto included in the Company’s most recent Annual Report on Form 10-K. The preparation of financial statements in accordance with U.S. GAAP requires management to make estimates and assumptions that affect the amounts reported in the Company’s consolidated condensed financial statements and accompanying notes. Due to the coronavirus (COVID-19) global pandemic, the global economy and financial markets have been disrupted and there is a significant amount of uncertainty about the length and severity of the consequences caused by the pandemic. The Company has considered information available to it as of the date of issuance of these financial statements and is not aware of any specific events or circumstances that would require an update to its estimates or judgments, or a revision to the carrying value of its assets or liabilities. Actual results could differ materially from those estimates. The Company uses a 13-week fiscal quarter accounting period with the fourth quarter ending on the Monday nearest December 31.
On January 19, 2020, the Company entered into a definitive equity interests purchase agreement with AKMMeadville Electronics (Xiamen) Co., Ltd (the Purchaser) for the sale of the Company’s following subsidiaries, which was completed on April 17, 2020: Shanghai Kaiser Electronics Co., Ltd. (SKE), Shanghai Meadville Electronics Co., Ltd. (SME), Shanghai Meadville Science & Technology Co., Ltd. (SP) and Guangzhou Meadville Electronics Co., Ltd. (GME) (collectively, the Mobility business unit). Prior to the closing of the sale of the Company’s Mobility business unit, all assets and liabilities attributable to the Mobility business unit have been aggregated under the captions “Current assets held for sale”, “Non-current assets held for sale”, “Current liabilities held for sale” and “Non-current liabilities held for sale”. For all periods presented in the consolidated condensed statements of operations, all sales, costs, expenses, income taxes and gain on sale attributable to the Mobility business unit have been aggregated under the caption “Income (loss) from discontinued operations, net of income taxes”. Prior year results have been recast to conform with the current presentation. Refer to Note 2, Discontinued Operations , for additional information.
Unless otherwise noted, amounts and disclosures throughout these notes to consolidated condensed financial statements relate to continuing operations. These consolidated condensed financial statements reflect all adjustments (consisting only of normal recurring adjustments) which, in the opinion of management, are necessary to present fairly the financial position, the results of operations and cash flows of the Company for the periods presented. The results of operations for the interim periods are not necessarily indicative of the results to be expected for the full year.
Reclassifications
Certain prior year amounts in the consolidated condensed financial statements have been reclassified due to the sale of the Company’s Mobility business unit. Refer to Note 2, Discontinued Operations , for further information regarding this sale and the resulting prior year reclassifications.
During the quarter ended September 28, 2020, the Company’s RF and Specialty Components (RF&S Components) operating segment met the quantitative threshold for separate presentation of a reportable segment. In prior periods, the Company had two reportable segments: PCB and E-M Solutions. The RF&S Components reportable segment was previously aggregated with the PCB reportable segment. As a result, certain prior year amounts and prior quarters within the current year have been reclassified to conform with this new presentation.
9
TTM TECHNOLOGIES, INC.
Notes to Consolidated Condensed Financial Statements—(Continued)
Further, in 2020, the Company began presenting research and development expenses as a separate line item on the consolidated condensed statements of operations to better align with similar presentation made by peers and to provide additional disclosure that is meaningful for investors. The prior year consolidated condensed statements of operations were adjusted to conform with this new presentation. Research and development expense were previously presented within general and administrative expense on the consolidated condensed statements of operations.
Immaterial Correction of Error
During the quarter ended September 28, 2020, the Company paid for certain transaction costs related to the sale of the Mobility business unit totaling $ 11,043 . This should have been recorded as an expense, which would have reduced the gain on sale of Mobility business unit, during the quarter ended June 29, 2020. The Company overstated both the income from discontinued operations, net of income taxes and net income by $ 11,043 , both basic earnings per share from discontinued operations and basic earnings per share of $ 0.10 and $ 0.11 in the quarter and two quarters ended June 29, 2020, respectively, and both diluted earnings per share from discontinued operations and diluted earnings per share of $ 0.10 in the quarter and two quarters ended June 29, 2020. Further, total current liabilities were understated by $ 11,043 and retained earnings were overstated by $ 11,043 as of June 29, 2020. Management concluded that this error was not material to the consolidated condensed financial statements for the quarter and two quarters ended June 29, 2020. Prior period amounts have been revised to correct the error.
Recently Adopted and Issued Accounting Standards
Recently Adopted Accounting Standards
In March 2020, the FASB issued ASU 2020-04, Reference Rate Reform (Topic 848): Facilitation of the Effects of Reference Rate Reform on Financial Reporting , which provides temporary relief to the GAAP guidance on contract modifications and hedge accounting to ease the financial reporting burdens of the expected market transition from LIBOR and other interbank offered rates to alternative rates. This guidance became effective beginning on March 12, 2020 and will remain in effect through December 31, 2022. The guidance on contract modifications can be applied prospectively from any date beginning March 12, 2020 and may also be applied to modifications of existing contracts made earlier in the interim period that included March 12, 2020. The guidance on hedging can be applied to eligible hedging relationships existing at the beginning of the interim period that included March 12, 2020 and to new eligible hedging relationships entered into after the beginning of that interim period. The Company adopted this ASU and it did not have a material impact on its financial statements.
In June 2016, the FASB issued ASU 2016-13, Financial Instruments - Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments , which amends the current accounting guidance and requires the measurement of all expected losses based on historical experience, current conditions and reasonable and supportable forecasts. For trade receivables, loans, and other financial instruments, the Company will be required to use a forward-looking expected loss model that reflects losses that are probable rather than the incurred loss model for recognizing credit losses. The standard became effective for interim and annual periods beginning after December 15, 2019. Application of the amendments is through a cumulative-effect adjustment to retained earnings as of the effective date. The Company adopted this ASU as of December 31, 2019 and it did not have a material impact on its financial statements.
Recently Issued Accounting Standards Not Yet Adopted
In December 2019, the FASB issued ASU 2019-12, Income Taxes (Topic 740): Simplifying the Accounting for Income Taxes , which is intended to simplify various aspects related to accounting for income taxes. ASU 2019-12 removes certain exceptions to the general principles in Topic 740 and also clarifies and amends existing guidance to improve consistent application. The guidance is effective for fiscal years beginning after December 15, 2020, including interim periods within those fiscal years. Early adoption is permitted. The Company has evaluated the new guidance to determine the impact it may have on its consolidated condensed financial statements and related disclosures and the impact is not expected to be material.
In August 2018, the FASB issued ASU 2018-14, Compensation—Retirement Benefits—Defined Benefit Plans—General (Subtopic 715-20)—Disclosure Framework—Changes to the Disclosure Requirements for Defined Benefit Plans . The amendments in this update change the disclosure requirements for employers that sponsor defined benefit pension and/or other postretirement benefit plans. It eliminates requirements for certain disclosures that are no longer considered cost beneficial and requires new disclosures that the FASB considers pertinent. The guidance is effective for fiscal years ending after December 15, 2020. Early adoption is permitted. The Company does not anticipate the adoption will have a material impact on its consolidated condensed financial statements and related disclosures.
10
TTM TECHNOLOGIES, INC.
Notes to Consolidated Condensed Financial Statements—(Continued)
(2) Discontinued Operations
On January 19, 2020, the Company entered into a definitive equity interests purchase agreement for the sale of the Company’s Mobility business unit. The sale was completed on April 17, 2020 for a base purchase price of $ 550,000 , subject to customary purchase price adjustments. The base purchase price does not include certain accounts receivable of the divested business, which were estimated to total approximately $ 95,000 . Subsequently, the final purchase price was $ 569,246 after customary purchase price adjustments, which did not include approximately $ 83,000 accounts receivable of the divested business.
On April 18, 2020, the Company also entered into a Transition Services Agreement (TSA) with the Purchaser pursuant to which the Purchaser is receiving certain services (the Services) to enable it to operate the Mobility business unit after the closing of the sale of the Mobility business unit. The Services include finance and accounting, human resources, legal and compliance, sales, information technology, and other corporate support services. Under the TSA, the Services are being provided at cost for a period of up to 24 months. There was no material impact on the Company’s consolidated condensed financial statements.
Further, on June 29, 2020, the Company entered into a Sales Force Agreement with the Purchaser pursuant to which the Company’s sales representatives will assist the Purchaser in selling PCBs manufactured by the Purchaser to certain customers for a commission for a period up to April 17, 2021. There was no material impact on the Company’s consolidated condensed financial statements.
As the sale of the Company’s Mobility business unit represents a strategic shift that will have a major effect on the Company’s operations and financial results, in accordance with the provisions of FASB authoritative guidance on the presentation of financial statements, Mobility business unit results are classified as discontinued operations in the consolidated condensed statements of operations for all periods presented. Prior year results have been recast to conform with the current presentation.
The following table summarizes the results of Mobility operations for each period prior to sale:
Quarter Ended
Three Quarters Ended
September 28,
September 30,
September 28,
September 30,
2020
2019
2020
2019
(In thousands, except per share data)
Net sales
$
—
$
182,644
$
143,951
$
372,560
Cost of goods sold
—
164,068
136,800
372,358
Gross profit
—
18,576
7,151
202
Operating expenses:
Selling and marketing
—
1,247
1,461
3,557
General and administrative
—
1,424
2,317
4,166
Research and development
—
—
147
—
Amortization of definite-lived intangibles
—
675
809
2,023
Total operating expenses
—
3,346
4,734
9,746
Operating income (loss)
—
15,230
2,417
( 9,544
)
Other (expense) income:
Interest expense
—
( 145
)
( 223
)
( 1,016
)
Gain on sale of the Mobility business unit
—
—
237,253
—
Other, net
—
2,251
1,160
3,692
Total other income, net
—
2,106
238,190
2,676
Income (loss) from discontinued operations
before income taxes
—
17,336
240,607
( 6,868
)
Income tax benefit (provision)
20,021
( 3,859
)
( 46,686
)
1,786
Income (loss) from discontinued operations,
net of income taxes
$
20,021
$
13,477
$
193,921
$
( 5,082
)
Earnings (loss) per share from discontinued operations:
Basic earnings (loss) per share
$
0.19
$
0.13
$
1.83
$
( 0.05
)
Diluted earnings (loss) per share
$
0.19
$
0.13
$
1.83
$
( 0.05
)
There was no depreciation expense related to the discontinued operations for the quarter ended September 28, 2020 and depreciation expense for the quarter ended September 30, 2019 was $ 18,704 . Depreciation expense related to the discontinued operations for the three quarters ended September 28, 2020 and September 30, 2019 was $ 21,382 and $ 54,645 , respectively.
11
TTM TECHNOLOGIES, INC.
Notes to Consolidated Condensed Financial Statements—(Continued)
During the quarter and three quarters ended September 2 8 , 2020, the Company’s income tax expense related to the discontinued operations was impacted by a net discrete tax benefit of $ 20,021 and a net discrete tax expense of $ 46,686 , respectively . As a result of the sale of the Mobility business unit, the discrete income tax benefit during the quarter ended September 28, 2020 is due to recognition of additional Internal Revenue Code (IRC) Section 250 deduction and foreign tax credit benefits. The net income tax expense for the three quarters ended September 28, 2020 is related mainly to (i) China withholding tax related to gain on sale, (ii) U.S. income tax related to Global Intangible Low Taxed Income (GILTI) inclusion net of IRC Section 250 deduction and foreign tax credits, and offset by (iii) release of U.S. uncertain tax positions.
Proceeds from the sale of the Company’s Mobility business unit have been presented in the consolidated condensed statements of cash flows within net cash provided by investing activities from discontinued operations. The following is a reconciliation of the gain recorded for the sale of the Company’s Mobility business unit (in thousands) :
Net proceeds from the sale of the Mobility business unit (1)
$
569,246
Mobility business unit assets:
Cash and cash equivalents
12,513
Restricted cash
35,412
Accounts receivable, net
12
Contract assets
40,072
Inventories
4,988
Prepaid expenses and other current assets
4,593
Property, plant and equipment, net
328,648
Goodwill
68,267
Definite-lived intangibles, net
5,520
Deposits and other non-current assets
6,291
Total Mobility business unit assets
506,316
Mobility business unit liabilities:
Accounts payable
142,636
Accrued salaries, wages and benefits
9,392
Other current liabilities
8,890
Other long-term liabilities
303
Total Mobility business unit liabilities
161,221
Derecognition of foreign currency translation adjustments and unrealized losses
on cash flow hedges recorded in accumulated other comprehensive loss
26,957
Other transaction costs incurred as part of the sale of the Mobility business unit (2)
13,855
Gain on sale of the Mobility business unit before income taxes
$
237,253
(1)
Net proceeds from the sale of the Mobility business unit are net of customary purchase price adjustments.
(2)
Costs directly incurred as a result of the sale of the Company’s Mobility business unit, including bank fees, legal fees, professional fees, and other costs.
(3) Leases
The Company leases some of its manufacturing and assembly plants, sales offices and equipment under non-cancellable operating leases that expire at various dates through 2049. The majority of the Company’s lease arrangements are comprised of fixed payments and certain leases consist of variable payments based on equipment usage. These variable payments are not included in the measurement of the right-of-use (ROU) asset or lease liability due to uncertainty of the payment amount and are recorded as lease expense in the period incurred. Certain leases contain renewal provisions at the Company’s option. Most of the leases require the Company to pay for certain other costs such as property taxes and maintenance. Certain leases also contain rent escalation clauses (step rents) that require additional rental amounts in the later years of the term. Rent expense for leases with step rents is recognized on a straight-line basis over the minimum lease term. The lease agreements do not contain any material residual value guarantees or material restrictive covenants.
12
TTM TECHNOLOGIES, INC.
Notes to Consolidated Condensed Financial Statements—(Continued)
The components of lease expense were as follows:
Quarter Ended
Three Quarters Ended
September 28, 2020
September 30, 2019
September 28, 2020
September 30, 2019
(In thousands)
Operating lease cost
$
2,333
$
2,202
$
7,041
$
6,367
Variable lease cost
133
137
376
398
Short-term lease cost
84
95
482
280
Supplemental cash flow information related to leases was as follows:
Three Quarters Ended
September 28, 2020
September 30, 2019
(In thousands)
Cash paid for amounts included in the measurement of lease liabilities:
Operating cash flows from operating leases
$
6,636
$
6,240
Right-of-use assets obtained in exchange for new lease obligations:
Operating leases
6,559
13,058
Supplemental balance sheet information related to leases was as follows:
As of
September 28, 2020
December 30, 2019
(In thousands)
Operating lease right-of-use assets
$
22,993
$
22,173
Other current liabilities
7,945
7,111
Operating lease liabilities
15,885
15,413
Total operating lease liabilities
$
23,830
$
22,524
As of
September 28, 2020
December 30, 2019
Weighted average remaining lease term
4.1 years
4.4 years
Weighted average discount rate
3.53
%
3.92
%
Maturities of operating lease liabilities were as follows (1) :
(In thousands)
Less than one year
$
9,309
1 - 2 years
5,114
2 - 3 years
4,030
3 - 4 years
3,011
4 - 5 years
2,046
Thereafter
2,148
Total lease payments
25,658
Less imputed interest
( 1,828
)
Total
$
23,830
(1)
Excludes $ 969 of legally binding minimum lease payments for leases signed but not yet commenced.
13
TTM TECHNOLOGIES, INC.
Notes to Consolidated Condensed Financial Statements—(Continued)
(4) Revenues
As of September 28, 2020, the aggregate amount of the transaction price allocated to remaining performance obligations for long-term contracts was $ 19,606 . The Company expects to recognize revenue on approximately 86 % of the remaining performance obligations for the Company’s long-term contracts over the next twelve months with the remaining amount recognized thereafter. The remaining performance obligations for the Company’s short-term contracts are expected to be recognized within one year.
Revenue from products and services transferred to customers over time and at a point in time accounted for 98 % and 2 %, respectively, of the Company’s revenue for the quarter and three quarters ended September 28, 2020. Revenue from products and services transferred to customers over time and at a point in time accounted for 97 % and 3 % , respectively, of the Company’s revenue for the quarter and three quarters ended September 30, 2019.
The following tables represent a disaggregation of revenue by principal end markets with the reportable segments:
Quarter Ended September 28, 2020
Quarter Ended September 30, 2019
PCB
RF&S Components
E-M Solutions
Total
PCB
RF&S Components
E-M Solutions
Total
End Markets
(In thousands)
Aerospace and Defense
$
182,709
$
180
$
16
$
182,905
$
170,651
$
729
$
1
$
171,381
Automotive
64,375
—
8,891
73,266
72,597
—
39,559
112,156
Cellular Phone
39
—
—
39
3,512
—
—
3,512
Computing/Storage/
Peripherals
62,606
186
30
62,822
57,367
592
72
58,031
Medical/Industrial/
Instrumentation
92,059
742
2,769
95,570
84,178
705
5,775
90,658
Networking/Communications
55,905
7,203
27,185
90,293
58,782
7,971
22,746
89,499
Other
5,971
3,431
( 721
)
8,681
5,729
3,647
( 440
)
8,936
Total
$
463,664
$
11,742
$
38,170
$
513,576
$
452,816
$
13,644
$
67,713
$
534,173
Three Quarters Ended September 28, 2020
Three Quarters Ended September 30, 2019
PCB
RF&S Components
E-M Solutions
Total
PCB
RF&S Components
E-M Solutions
Total
End Markets
(In thousands)
Aerospace and Defense
$
555,771
$
189
$
36
$
555,996
$
510,210
$
777
$
367
$
511,354
Automotive
183,896
—
27,816
211,712
227,239
—
83,317
310,556
Cellular Phone
1,203
—
—
1,203
5,416
—
—
5,416
Computing/Storage/
Peripherals
192,275
663
170
193,108
170,914
1,373
261
172,548
Medical/Industrial/
Instrumentation
292,794
2,336
9,714
304,844
246,889
2,629
23,583
273,101
Networking/
Communications
178,428
19,173
82,429
280,030
188,069
37,192
72,011
297,272
Other
25,262
10,913
( 1,548
)
34,627
18,025
9,754
( 531
)
27,248
Total
$
1,429,629
$
33,274
$
118,617
$
1,581,520
$
1,366,762
$
51,725
$
179,008
$
1,597,495
14
TTM TECHNOLOGIES, INC.
Notes to Consolidated Condensed Financial Statements—(Continued)
(5) Composition of Certain Consolidated Condensed Financial Statement Captions
As of
September 28, 2020
December 30, 2019
(In thousands)
Inventories:
Raw materials
$
116,090
$
97,660
Work-in-process
8,059
10,898
Finished goods
3,439
5,195
$
127,588
$
113,753
Property, plant and equipment, net:
Land and land use rights
$
62,009
$
62,009
Buildings and improvements
397,361
381,980
Machinery and equipment
833,790
777,916
Furniture and fixtures and other
10,461
10,329
Construction-in-progress
27,604
58,195
1,331,225
1,290,429
Less: Accumulated depreciation
( 676,388
)
( 612,228
)
$
654,837
$
678,201
Other current liabilities:
Income taxes payable
$
14,489
$
13,035
Interest
13,739
8,893
Sales return and allowances
12,754
13,544
Restructuring
11,695
502
Other
62,641
56,508
$
115,318
$
92,482
(6) Goodwill
As of September 28, 2020 and December 30, 2019, goodwill by reportable segment was as follows:
PCB
RF&S Components
Total
(In thousands)
Balance as of December 30, 2019
Goodwill
$
700,724
$
177,200
$
877,924
Accumulated impairment loss
( 171,400
)
—
( 171,400
)
529,324
177,200
706,524
Impairment loss during the three quarters ended September 28, 2020
—
( 69,200
)
( 69,200
)
Balance as of September 28, 2020
Goodwill
700,724
177,200
877,924
Accumulated impairment loss
( 171,400
)
( 69,200
)
( 240,600
)
$
529,324
$
108,000
$
637,324
The Company evaluates its goodwill on an annual basis during its fourth fiscal quarter and at other times when events or changes in circumstances – such as significant adverse changes in the business climate or operating results or changes in management strategy, coupled with a decline in the market price of its stock and market capitalization – indicate that there may be a potential impairment.
During the third quarter of 2020, the Company determined that there was a permanent loss of a key customer in the RF&S Components reporting unit that coupled with the impact of COVID-19, resulted in lower than anticipated results and continued decline in sales. The Company considered these factors to be indicators of potential impairment requiring the Company to test the related goodwill for impairment. As of September 28, 2020, the Company completed a quantitative goodwill impairment analysis related to its RF&S Components reporting unit by comparing the fair value of the reporting unit with its carrying amount. The Company determined the fair value of the reporting unit by using both a discounted cash flow (DCF) and a market approach. Under the market
15
TTM TECHNOLOGIES, INC.
Notes to Consolidated Condensed Financial Statements—(Continued)
approach, the Company used revenue and earnings multiples based on comparable industry multiples to estimate the fair value of the reporting unit.
Under the DCF approach, the Company estimated the future cash flows, as well as selected a risk-adjusted discount rate to measure the present value of the anticipated cash flows. When determining future cash flow estimates, the Company considered historical results adjusted to reflect current and anticipated future operating conditions. The Company estimated cash flows for the reporting unit over a discrete period and a terminal period (considering expected long-term growth rates and trends).
Based on its analysis, the Company determined that the fair value of the RF&S Components reporting unit was less than its carrying value and recorded a non-cash goodwill impairment charge of $ 69,200 during the quarter ended September 28, 2020. If the Company’s future cash flow projections and other fair value assumptions for its reporting unit change, the Company may be subject to potential additional impairment in subsequent quarters. Estimating the fair value of the reporting unit requires the Company to make assumptions and estimates in such areas as future economic conditions, industry-specific conditions, product pricing, and necessary capital expenditures. The use of different assumptions or estimates for future cash flows, discount rates, or terminal growth rates could produce substantially different estimates of the fair value of the reporting unit.
(7) Definite-lived Intangibles
As of September 28, 2020 and December 30, 2019, the components of definite-lived intangibles were as follows:
Gross
Amount
Accumulated
Amortization
Net
Carrying
Amount
Weighted
Average
Amortization
Period
(In thousands)
(In years)
September 28, 2020
Customer relationships
$
397,500
$
( 140,552
)
$
256,948
10.9
Technology
47,650
( 12,318
)
35,332
9.5
$
445,150
$
( 152,870
)
$
292,280
December 30, 2019
Customer relationships
$
396,270
$
( 111,272
)
$
284,998
11.0
Technology
39,500
( 8,064
)
31,436
9.4
Acquired intangibles from acquisition in 2019
Customer relationships
1,230
( 31
)
1,199
5.0
Technology
8,150
( 103
)
8,047
10.0
$
445,150
$
( 119,470
)
$
325,680
Definite-lived intangibles are generally amortized using the straight-line method of amortization over the estimated useful life. Amortization expense was $ 11,510 and $ 10,680 for the quarters ended September 28, 2020 and September 30, 2019, respectively, and $ 33,400 and $ 39,784 for the three quarters ended September 28, 2020 and September 30, 2019, respectively. For the quarter and three quarters ended September 28, 2020, $ 1,384 and $ 4,151 , respectively, of amortization expense is included in cost of goods sold. For the quarter and three quarters ended September 30, 2019, $ 1,180 and $ 3,539 , respectively, of amortization expense is included in cost of goods sold.
Estimated aggregate amortization for definite-lived intangible assets for the next five years and thereafter is as follows:
(In thousands)
Remaining 2020
$
10,973
2021
41,179
2022
38,631
2023
36,713
2024
29,713
Thereafter
135,071
$
292,280
16
TTM TECHNOLOGIES, INC.
Notes to Consolidated Condensed Financial Statements—(Continued)
(8) Long-term Debt and Letters of Credit
The following table summarizes the long-term debt of the Company as of September 28, 2020 and December 30, 2019:
Interest Rate as of
September 28, 2020
Principal
Outstanding
as of
September 28, 2020
Interest Rate as of
December 30, 2019
Principal
Outstanding
as of
December 30, 2019
(In thousands)
Term Loan due September 2024
2.65
%
$
405,879
4.28
%
$
805,879
Senior Notes due October 2025
5.63
375,000
5.63
375,000
Convertible Senior Notes due December 2020
1.75
249,975
1.75
249,975
U.S. ABL Revolving Loan due June 2024
1.40
40,000
3.03
40,000
Asia ABL Revolving Loan due June 2024
1.55
30,000
3.18
30,000
1,100,854
1,500,854
Less: Long-term debt unamortized discount
( 3,054
)
( 11,943
)
Long-term debt unamortized debt
issuance costs
( 7,802
)
( 12,974
)
1,089,998
1,475,937
Less: current maturities
( 249,975
)
( 249,975
)
Long-term debt, less current maturities
$
840,023
$
1,225,962
As of September 28, 2020, the Company’s restricted cash balance of $ 249,975 consisted of a specific deposit account to be used for principal payment on the Convertible Senior Notes due December 2020.
The Company has twelve months to reinvest the cash proceeds received from the sale of the Mobility business unit. If the proceeds are not reinvested, the Company is required to use the proceeds to prepay the Term Loan. The Company used a portion of the cash proceeds to repay $ 400,000 of the Term Loan during the quarter ended September 28, 2020 and plans to use the remaining cash proceeds for reinvestment. Permitted investments, as defined in the Term Loan Credit Agreement, include extensions of trade credit in the ordinary course of business, investments in cash and cash equivalents, permitted acquisitions, investments in assets useful in the business of the Company and its restricted subsidiaries, investments in joint ventures and unrestricted subsidiaries among others.
Debt Covenants
Borrowings under the Term Loan and Senior Notes are subject to certain affirmative and negative covenants, including limitations on indebtedness, corporate transactions, investments and dispositions, and share payments.
Under the occurrence of certain events, the U.S. Asset-Based Lending Credit Agreement (U.S. ABL) and Asia Asset-Based Lending Credit Agreement (Asia ABL) (collectively, the ABL Revolving Loans), are subject to various financial and operational covenants, including maintaining minimum fixed charge coverage ratios.
Debt Issuance and Debt Discount
As of September 28 , 2020 and December 30, 2019, remaining unamortized debt discount and debt issuance costs for the Term Loan Facility, Senior Notes and Convertible Senior Notes are as follows:
As of September 28, 2020
As of December 30, 2019
Debt
Issuance Costs
Debt
Discount
Effective
Interest Rate
Debt
Issuance Costs
Debt
Discount
Effective
Interest Rate
(In thousands, except interest rates)
Term Loan due September 2024
$
2,862
$
866
4.66
%
$
6,663
$
2,016
4.66
%
Senior Notes due October 2025
4,721
—
5.92
5,316
—
5.92
Convertible Senior Notes
219
2,188
6.48
995
9,927
6.48
$
7,802
$
3,054
$
12,974
$
11,943
The above debt discount and debt issuance costs are recorded as a reduction of the debt and are amortized into interest expense using an effective interest rate over the duration of the debt.
Remaining unamortized debt issuance costs for the ABL Revolving Loans of $ 2,084 and $ 2,511 as of September 28 , 2020 and December 30, 2019, respectively, are included in other non-current assets and are amortized to interest expense over the duration of the ABL Revolving Loans using the straight-line method of amortization.
17
TTM TECHNOLOGIES, INC.
Notes to Consolidated Condensed Financial Statements—(Continued)
As of September 28 , 2020 , the remaining weighted average amortization period for all unamortized debt discount and debt issuance costs was 3.6 years.
(9) Income Taxes
The Company’s effective tax rate is impacted by tax rates in China and Hong Kong, the U.S. federal income tax rate, apportioned state income tax rates, generation of credits and deductions available to the Company as well as changes in valuation allowances and certain non-deductible items. Additionally, no tax benefit was recorded on the losses incurred in certain foreign jurisdictions as a result of corresponding increases in the valuation allowances in these jurisdictions.
During the quarter and three quarters ended September 28, 2020, the Company’s effective tax rate was impacted by a net discrete benefit of $ 1,072 and $ 5,890 , respectively. This is related mainly to release of uncertain tax positions due to the expiration of the statute of limitation in foreign jurisdictions, change in the estimated tax benefits in the United States for GILTI and in Hong Kong related to unrealized foreign exchange gain and loss, netted against (i) an increase of valuation allowance and withholding tax expense related to the announced closure of two of the Company’s E-M Solutions plants, (ii) retroactive approval of the Company’s renewal application for High and New Tax Enterprise status for two of the Company’s manufacturing subsidiaries in China (including the impact on the respective Company’s deferred tax assets) and (iii) by the accrued interest expense on existing uncertain tax positions.
The Company has various foreign subsidiaries formed or acquired to conduct or support its business outside the United States. The Company expects its earnings attributable to most foreign subsidiaries may be repatriated back to the U.S. and so a deferred tax liability has been recorded for foreign withholding and the estimated federal/state tax impact. For those other companies with earnings currently being reinvested outside of the U.S., no deferred tax liabilities on undistributed earnings are recorded.
(10) Financial Instruments
Derivatives
Interest Rate Swaps
The Company’s business is exposed to interest rate risk resulting from fluctuations in interest rates on certain LIBOR-based variable rate debt. Increases in interest rates would increase interest expenses relating to the outstanding variable rate borrowings and increase the cost of debt. Fluctuations in interest rates can also lead to significant fluctuations in the fair value of the debt obligations.
On May 15, 2018, the Company entered into a four-year pay-fixed, receive floating (1-month LIBOR), interest rate swap arrangement with a notional amount of $ 400,000 for the period beginning June 1, 2018 and ending on June 1, 2022 . Under the terms of the interest rate swap, the Company pays a fixed rate of 2.84 % against the first interest payments of a portion of its LIBOR-based debt and receives floating 1-month LIBOR during the swap period.
At inception, the Company designated the interest rate swap as a cash flow hedge and the fair value of the interest rate swap was zero . As of September 28, 2020, the fair value of the interest rate swap was recorded as a liability in the amount of $ 17,461 and included as a component of other long-term liabilities. The change in the fair value of the interest rate swap is recorded as a component of accumulated other comprehensive loss, net of tax. No ineffectiveness was recognized for the quarter and three quarters ended September 28, 2020 and September 30, 2019. The interest rate swap increased interest expense by $ 2,707 and $ 602 for the quarters ended September 28, 2020 and September 30, 2019, respectively, and $ 6,224 and $ 1,308 for the three quarters ended September 28, 2020 and September 30, 2019, respectively.
Foreign Exchange Contracts
The Company enters into foreign currency forward contracts to mitigate the impact of changes in foreign currency exchange rates and to reduce the volatility of purchases and other obligations generated in currencies other than its functional currencies. The Company’s foreign subsidiaries may at times purchase forward exchange contracts to manage their foreign currency risks in relation to certain purchases of machinery denominated in foreign currencies other than the Company’s functional currencies. The notional amount of the foreign exchange contracts as of September 28, 2020 and December 30, 2019 was approximately $ 1,968 (Japanese Yen (JPY) 209.0 million) and $ 1,994 (JPY 215.8 million), respectively. The Company has designated certain of these foreign exchange contracts as cash flow hedges.
18
TTM TECHNOLOGIES, INC.
Notes to Consolidated Condensed Financial Statements—(Continued)
The fair values of derivative instruments in the consolidated condensed balance sheets are as follows:
Asset/(Liability) Fair Value
Balance Sheet Location
September 28, 2020
December 30, 2019
(In thousands)
Cash flow derivative instruments designated as hedges:
Interest rate swap
Other long-term liabilities
$
( 17,461
)
$
( 12,067
)
Cash flow derivative instruments not designated as hedges:
Foreign exchange contracts
Prepaid expenses and other current assets
19
1
Foreign exchange contracts
Other current liabilities
—
( 3
)
The following table provides information about the amounts recorded in accumulated other comprehensive loss related to derivatives designated as cash flow hedges, as well as the amounts recorded in each caption in the consolidated condensed statements of operations when derivative amounts are reclassified out of accumulated other comprehensive loss for the quarter and three quarters ended September 28, 2020 and September 30, 2019:
Quarter Ended September 28, 2020
Quarter Ended September 30, 2019
Financial
Statement
Caption
Loss Recognized
in Other
Comprehensive Loss
Loss
Reclassified
into Income
Loss Recognized
in Other
Comprehensive Loss
Loss
Reclassified
into Income
(In thousands)
Cash flow hedge:
Interest rate swap
Interest expense
$
( 586
)
$
( 2,707
)
$
( 1,923
)
$
( 602
)
Three Quarters Ended September 28, 2020
Three Quarters Ended September 30, 2019
Financial
Statement
Caption
Loss Recognized
in Other
Comprehensive Loss
Loss
Reclassified
into Income
Loss Recognized
in Other
Comprehensive Loss
Loss
Reclassified
into Income
(In thousands)
Cash flow hedge:
Interest rate swap
Interest expense
$
( 11,618
)
$
( 6,224
)
$
( 10,586
)
$
( 1,308
)
The following table provides a summary of the activity associated with the designated cash flow hedges reflected in accumulated other comprehensive loss for the three quarters ended September 30, 2020 and September 30, 2019:
Three Quarters Ended
September 28,
September 30,
2020
2019
(In thousands)
Beginning balance, net of tax
$
( 9,617
)
$
( 4,214
)
Changes in fair value loss, net of tax
( 8,667
)
( 8,164
)
Reclassification to earnings, net of tax
4,727
1,128
Derecognition of unrealized losses on cash flow hedge
due to sale of Mobility business unit
384
—
Ending balance, net of tax
$
( 13,173
)
$
( 11,250
)
Based on the current yield curve, the Company expects that losses of approximately $ 7,961 of the accumulated other comprehensive loss will be reclassified into the statement of operations, net of tax, in the next twelve months.
19
TTM TECHNOLOGIES, INC.
Notes to Consolidated Condensed Financial Statements—(Continued)
(11) Accumulated Other Comprehensive Loss
The following provides a summary of the components of accumulated other comprehensive loss, net of tax, as of September 28, 2020 and December 30, 2019:
Foreign
Currency
Translation
Pension
Obligation
(Losses) Gains
on Cash Flow
Hedges
Total
(In thousands)
Ending balance as of December 30, 2019
$
1,115
$
( 1,584
)
$
( 9,617
)
$
( 10,086
)
Other comprehensive income (loss)
before reclassifications
778
4
( 8,667
)
( 7,885
)
Amounts reclassified from accumulated
other comprehensive loss
—
—
4,727
4,727
Reclassification adjustment for
foreign currency translation
( 346
)
—
—
( 346
)
Derecognition of foreign currency
translation adjustments due to sale
of Mobility business unit
( 27,341
)
—
—
( 27,341
)
Derecognition of unrealized losses on
cash flow hedge due to sale of
Mobility business unit
—
—
384
384
Other comprehensive (loss) income
( 26,909
)
4
( 3,556
)
( 30,461
)
Ending balance as of September 28, 2020
$
( 25,794
)
$
( 1,580
)
$
( 13,173
)
$
( 40,547
)
(12) Significant Customers and Concentration of Credit Risk
In the normal course of business, the Company extends credit to its customers. Some customers to which the Company extends credit are located outside the United States. The Company performs ongoing credit evaluations of customers, does not require collateral, and considers the credit risk profile of the entity from which the receivable is due in further evaluating collection risk.
The Company’s customers include both OEMs and EMS companies. The Company’s OEM customers often direct a significant portion of their purchases through EMS companies. While the Company’s customers include both OEM and EMS providers, the Company measures customer concentration based on OEM companies, as they are the ultimate end customers. For the quarter and three quarters ended September 28, 2020, one customer accounted for approximately 13 % and 10 % of the Company’s net sales, respectively. There were no other customers that accounted for 10% or more of net sales for the quarter and three quarters ended September 28, 2020. There were no customers that accounted for 10% or more of net sales for the quarter and three quarters ended September 30, 2019.
(13) Fair Value Measures
The Company measures at fair value its financial and non-financial assets by using a fair value hierarchy that prioritizes the inputs to valuation techniques used to measure fair value. Fair value is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date, essentially an exit price, based on the highest and best use of the asset or liability.
20
TTM TECHNOLOGIES, INC.
Notes to Consolidated Condensed Financial Statements—(Continued)
The carrying amount and estimated fair value of the Company’s financial instruments as of September 28, 2020 and December 30, 2019 were as follows:
As of
As of
September 28, 2020
December 30, 2019
Carrying
Amount
Fair Value
Carrying
Amount
Fair Value
(In thousands)
Derivative assets, current
$
19
$
19
$
1
$
1
Derivative liabilities, current
—
—
3
3
Derivative liabilities, non-current
17,461
17,461
12,067
12,067
Term Loan due September 2024
402,151
396,240
797,200
808,901
Senior Notes due October 2025
370,279
384,240
369,684
390,143
Convertible Senior Notes due December 2020
247,568
297,145
239,053
391,686
ABL Revolving Loans
70,000
70,000
70,000
70,000
The fair value of the derivative instruments was determined using pricing models developed based on the LIBOR swap rate, foreign currency exchange rates, and other observable market data, including quoted market prices, as appropriate using Level 2 inputs. The values were adjusted to reflect non-performance risk of both the counterparty and the Company, as necessary.
The fair value of the long-term debt was estimated based on quoted market prices or discounting the debt over its life using current market rates for similar debt as of September 28, 2020 and December 30, 2019, which are considered Level 2 inputs.
The fair value of the Convertible Senior Notes was estimated based on quoted market prices of the securities on an active exchange, which are considered Level 2 inputs.
As of September 28, 2020 and December 30, 2019, the Company’s other financial instruments also included cash and cash equivalents, restricted cash, accounts receivable, and accounts payable. Due to short-term maturities, the carrying amount of these instruments approximates fair value. The Company’s cash, cash equivalents, and restricted cash as of September 28, 2020 consisted of $ 429,470 held in the U.S., with the remaining $ 233,815 held by foreign subsidiaries.
The majority of the Company’s non-financial assets and liabilities, which include goodwill, intangible assets, inventories, and property, plant and equipment, are not required to be carried at fair value on a recurring basis. However, if certain triggering events occur (or are tested at least annually in the case of goodwill) such that a non-financial instrument is required to be evaluated for impairment, based upon a comparison of the non-financial instrument’s fair value to its carrying value, an impairment is recorded to reduce the carrying value to the fair value, if the carrying value exceeds the fair value.
As of September 28, 2020, the Company’s goodwill balance related to its RF&S Components reporting unit of $ 108,000 was measured at fair value on a nonrecurring basis. The Company recorded a non-cash goodwill impairment charge of $ 69,200 during the quarter and three quarters ended September 28, 2020. The fair value of goodwill was determined using both a DCF and a market approach, which are considered Level 3 inputs.
(14) Commitments and Contingencies
Legal Matters
The Company is subject to various legal matters, which it considers normal for its business activities. While the Company currently believes that the amount of any reasonably possible loss for known matters would not be material to the Company’s financial condition, the outcome of these actions is inherently difficult to predict. In the event of an adverse outcome, the ultimate potential loss could have a material adverse effect on the Company’s financial condition or results of operations in a particular period. The Company has accrued amounts for its loss contingencies which are probable and estimable as of September 28, 2020 and December 30, 2019. However, these amounts are not material to the consolidated condensed financial statements of the Company.
21
TTM TECHNOLOGIES, INC.
Notes to Consolidated Condensed Financial Statements—(Continued)
(15) Earnings Per Share
The following is a reconciliation of the numerator and denominator used to calculate basic earnings per share and diluted earnings per share from continuing operations for the quarter and three quarters ended September 28, 2020 and September 30, 2019:
Quarter Ended
Three Quarters Ended
September 28, 2020
September 30, 2019
September 28, 2020
September 30, 2019
(In thousands, except per share amounts)
Net (loss) income from continuing operations
$
( 61,472
)
$
2,393
$
( 55,346
)
$
21,124
Basic weighted average shares
106,729
105,492
106,130
105,092
Dilutive effect of performance-based restricted stock units,
restricted stock units and stock options
—
982
—
973
Diluted shares
106,729
106,474
106,130
106,065
(Loss) earnings per share:
Basic
$
( 0.58
)
$
0.02
$
( 0.52
)
$
0.20
Diluted
$
( 0.58
)
$
0.02
$
( 0.52
)
$
0.20
For the quarter and three quarters ended September 28, 2020, potential shares of common stock, consisting of stock options to purchase approximately 80 shares of common stock at exercise prices ranging from $ 11.83 to $ 16.60 per share, 3,187 restricted stock units (RSUs), and 216 performance-based restricted stock units (PRUs) were not included in the computation of diluted earnings per share because the Company incurred a net loss and as a result, the impact would be anti-dilutive.
PRUs, RSUs and stock options to purchase 407 and 862 shares of common stock for the quarter and three quarters ended September 30, 2019, respectively, were not included in the computation of diluted earnings per share. The PRUs were not included in the computation of diluted earnings per share because the performance conditions had not been met at September 30, 2019, and for RSUs and stock options, the options’ exercise prices or the total expected proceeds under the treasury stock method was greater than the average market price of common shares during the applicable quarter and three quarters and, as a result, the impact would be anti-dilutive.
Outstanding warrants for the quarter and three quarters ended September 28, 2020 and September 30, 2019, to purchase common stock were not included in the computation of dilutive earnings per share because the strike price of the warrants to purchase the Company’s common stock were greater than the average market price of common shares during the applicable quarter, and therefore, the effect would be anti-dilutive or because the Company incurred a net loss.
During the quarter ended September 28, 2020, the Company calculated the dilutive effect of Convertible Senior Notes using the treasury stock method because the Company now has the intent and ability to settle the Convertible Senior Notes in cash. This change in policy from the if-converted method to treasury stock method is applied on a prospective basis. For the quarter and three quarters ended September 28, 2020, the effect of shares of common stock related to the Company’s Convertible Senior Notes, based on the treasury stock method, were not included in the computation of dilutive earnings per share as the impact would be anti-dilutive.
For the quarter and three quarters ended September 30, 2019, the effect of shares of common stock related to the Company’s Convertible Senior Notes, based on the if-converted method, were not included in the computation of dilutive earnings per share as the impact would be anti-dilutive.
(16) Stock-Based Compensation
Stock-based compensation expense is recognized in the accompanying consolidated condensed statements of operations as follows:
Quarter Ended
Three Quarters Ended
September 28,
September 30,
September 28,
September 30,
2020
2019
2020
2019
(In thousands)
(In thousands)
Cost of goods sold
$
1,173
$
937
$
2,643
$
2,210
Selling and marketing
557
574
1,299
1,408
General and administrative
2,705
3,089
7,872
8,421
Research and development
44
62
147
151
Stock-based compensation expense recognized
$
4,479
$
4,662
$
11,961
$
12,190
22
TTM TECHNOLOGIES, INC.
Notes to Consolidated Condensed Financial Statements—(Continued)
Summary of Unrecognized Compensation Costs
The following is a summary of total unrecognized compensation costs as of September 28, 2020:
Unrecognized Stock-Based Compensation Cost
Remaining Weighted Average
Recognition Period
(In thousands)
(In years)
RSU awards
$
24,422
1.5
PRU awards
2,402
1.6
Stock options
154
1.4
$
26,978
(17) Segment Information
The reportable segments shown below are the Company’s segments for which separate financial information is available and upon which operating results are evaluated by the chief operating decision maker to assess performance and to allocate resources. During the quarter ended September 28, 2020, the Company’s RF&S Components operating segment met the quantitative threshold for separate presentation of a reportable segment. In prior periods, the Company had two reportable segments: PCB and E-M Solutions. The RF&S Components reportable segment was previously aggregated with the PCB reportable segment. As a result, certain prior year amounts have been reclassified to conform with this new presentation. The PCB reportable segment is comprised of multiple operating segments. Factors considered to determine whether operating segments can be aggregated into reportable segments included similarity regarding economic characteristics, products, production processes, type or classes of customers, distribution methods, and regulatory environments.
The Company, including the chief operating decision maker, evaluates segment performance based on reportable segment income, which is operating income before amortization of intangibles. Interest expense and interest income are not presented by segment since they are not included in the measure of segment profitability reviewed by the chief operating decision maker. All inter-segment transactions have been eliminated.
Quarter Ended
Three Quarters Ended
September 28, 2020
September 30, 2019
September 28, 2020
September 30, 2019
(In thousands)
Net Sales:
PCB
$
463,664
$
452,816
$
1,429,629
$
1,366,762
RF&S Components
11,742
13,644
33,274
51,725
E-M Solutions
38,170
67,713
118,617
179,008
Total net sales
$
513,576
$
534,173
$
1,581,520
$
1,597,495
Operating Segment (Loss) Income:
PCB
$
64,219
$
51,326
$
199,683
$
164,458
RF&S Components
( 66,098
)
5,999
( 59,880
)
25,824
E-M Solutions
( 873
)
3,236
( 20,779
)
5,278
Corporate
( 25,990
)
( 28,750
)
( 86,698
)
( 75,537
)
Total operating segment income
( 28,742
)
31,811
32,326
120,023
Amortization of definite-lived intangibles (1)
( 11,510
)
( 10,680
)
( 33,400
)
( 39,784
)
Total operating (loss) income
( 40,252
)
21,131
( 1,074
)
80,239
Total other expense
( 22,520
)
( 14,548
)
( 57,916
)
( 53,586
)
(Loss) income before income taxes
$
( 62,772
)
$
6,583
$
( 58,990
)
$
26,653
(1)
Amortization of definite-lived intangibles primarily relates to the PCB and RF&S Components reportable segments. For the quarter and three quarters ended September 28, 2020, $ 1,384 and $ 4,151 , respectively, of amortization expense is included in cost of goods sold. For the quarter and three quarters ended September 30, 2019, $ 1,180 and $ 3,539 , respectively, of amortization expense is included in cost of goods sold.
During the quarter and three quarters ended September 28, 2020, the Company recorded an impairment charge for goodwill of $ 69,200 related to its RF&S Components reportable segment.
The Corporate category primarily includes operating expenses that are not included in the segment operating performance measures. Corporate consists primarily of corporate governance functions such as finance, accounting, information technology, facilities and human resources personnel, as well as global sales and marketing personnel, research and development costs, and acquisition and integration costs associated with acquisitions.
23
TTM TECHNOLOGIES, INC.
Notes to Consolidated Condensed Financial Statements—(Continued)
The Company markets and sells its products in approximately 53 countries. Other than in the United States and China, the Company does not conduct business in any country in which its net sales in that country exceed 10 % of the Company’s total net sales. Net sales are as follows:
Quarter Ended
Three Quarters Ended
September 28, 2020
September 30, 2019
September 28, 2020
September 30, 2019
(In thousands)
Net Sales:
United States
$
271,050
$
281,875
$
802,681
$
841,196
China
80,696
75,692
252,736
254,888
Other
161,830
176,606
526,103
501,411
Total net sales
$
513,576
$
534,173
$
1,581,520
$
1,597,495
Net sales are attributed to countries by country invoiced.
(18) Related Party Transactions
In the normal course of business, the Company’s foreign subsidiaries purchase laminate and prepreg from related parties in which a significant shareholder of the Company holds an equity interest. The Company’s foreign subsidiaries purchased laminate and prepreg from these related parties in the amount of $ 5,760 and $ 7,151 for the quarters ended September 28, 2020 and September 30, 2019, respectively, and $ 17,527 and $ 22,847 for the three quarters ended September 28, 2020 and September 30, 2019, respectively.
As of September 28, 2020 and December 30, 2019, the Company’s consolidated condensed balance sheets included $ 6,786 and $ 9,220 , respectively, in accounts payable due to related parties for purchases of laminate and prepreg and such balances are included as a component of accounts payable on the consolidated condensed balance sheets.
(19) Restructuring Charges
On April 29, 2020, the Company announced the restructuring of its E-M Solutions business unit. The E-M Solutions business unit consists of three Chinese manufacturing facilities with two being in Shanghai (SH BPA and SH E-MS) and one in Shenzhen (SZ). The Company will discontinue operations at the SH E-MS and SZ facilities while integrating the SH BPA facility into its PCB operations. The restructuring is another step in advancing the Company’s stated strategy of increasing its focus on differentiated higher margin products that more fully leverage the Company’s early engagement capabilities and industry leading engineering-based technology solutions. The closure of the SH E-MS and SZ facilities will not be immediate as the Company has obligations to fulfill with customers. The Company anticipates phasing out production over the remainder of 2020. As of September 28, 2020, the Company has incurred approximately $ 14,671 of restructuring charges and $ 5,694 of accelerated depreciation expense since the April 29, 2020 announcement. The Company estimates that it will incur total charges related to restructuring of its E-M Solutions business unit of approximately $ 18,500 and accelerated depreciation expense of approximately $ 8,000 .
In connection with the restructuring of its E-M Solutions business unit and other global realignment restructuring efforts, the Company recognized employee separation, contract termination and other costs during the quarter and three quarters ended September 28, 2020 and September 30, 2019. Contract termination and other costs primarily represented plant closure costs.
24
TTM TECHNOLOGIES, INC.
Notes to Consolidated Condensed Financial Statements—(Continued)
The below table summarizes such restructuring costs by reportable segment, which are included as a component of general and administrative expenses in the consolidated condensed statements of operations, for the quarter and three quarters ended
September 28, 2020 and September 30, 2019:
Quarter Ended September 28, 2020
Three Quarters Ended September 28, 2020
Employee
Separation/
Severance
Contract
Termination
and Other
Costs
Total
Employee
Separation/
Severance
Contract
Termination
and Other
Costs
Total
(In thousands)
Reportable Segment:
PCB
$
—
$
—
$
—
$
( 8
)
$
14
$
6
E-M Solutions
979
7
986
14,373
298
14,671
Corporate
—
102
102
—
153
153
$
979
$
109
$
1,088
$
14,365
$
465
$
14,830
Quarter Ended September 30, 2019
Three Quarters Ended September 30, 2019
Employee
Separation/
Severance
Contract
Termination
and Other
Costs
Total
Employee
Separation/
Severance
Contract
Termination
and Other
Costs
Total
(In thousands)
Reportable Segment:
PCB
$
5
$
—
$
5
$
2,941
$
—
$
2,941
RF&S Components
—
—
—
52
—
52
Corporate
—
7
7
160
23
183
$
5
$
7
$
12
$
3,153
$
23
$
3,176
Accrued restructuring costs are included as a component of other current liabilities in the consolidated condensed balance sheet. The below table shows the utilization of the accrued restructuring costs during the three quarters ended September 28, 2020:
Employee
Separation/
Severance
Contract
Termination
and Other
Costs
Total
(In thousands)
Accrued as of December 30, 2019
$
260
$
242
$
502
Charged to expense
14,365
465
14,830
Amount paid
( 3,139
)
( 498
)
( 3,637
)
Accrued as of September 28, 2020
$
11,486
$
209
$
11,695
25
Text extracted from the filing as submitted to EDGAR. Formatting, tables and exhibits are simplified for reading; the original document is authoritative for anything you rely on.